Rural Distribution

8/3/2019 Rural Distribution

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Rural Distribution


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Learning ObjectivesLearning Objectives

Grasp the realities of Indian rural retail channel

Examine strategies for managing rural retail channel

Understand limitations of traditional distribution channel

Examine opportunities for organized rural retailing

Be aware of threats and challenges for organized rural

retailing


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Retail: An IntroductionRetail: An Introduction

Retailing is, All the activities involved in selling

goods or services directly to final consumers for their

personal non-business use.

Retail mix is the mix of variables including price,

location, communications, merchandise, physical

attributes, services and personnel.


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Retail: An IntroductionRetail: An Introduction

Retail is primarily classified into two sectors as:

organised and

unorganised retail sector

Organised retail sector has a single organisation having

large format retail stores providing wide varieties of

goods in good number of locations.

Unorganised sector has large number of organisations

having single, small retail outlets with limited variety at

single location.


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Indian Rural Retail MarketIndian Rural Retail Market

Rural markets are relatively virgin markets, which

evolved on their own with very little direct contact with

them by the corporate world, but their size is compelling

and attractive.

Of 33 lakh retail outlets in India in 1999, 21 lakh were in

rural areas.

7 Indian states account for 76% of countrys total rural

retail outlets.

184 districts accounted for 69% sales in 1999.


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In interior villages retailing is part time chore in a part of

house. The maintenance costs for retail outlets in interior

villages are also low with most of cost spent on traveling

and transportation.

In the 6,27,000 villages penetration into rural areas is

facilitated through the wholesaler, semi wholesaler, arhatia

and itinerant merchant network through 3000 odd towns,

5000 wholesale assembly markets (with lot of overlap) and

about 25,000 'haats/shandies'.


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One of main reason for explosion of retail and its

fragmented nature is that it is a form of disguised

unemployment / underemployment.

Overcrowded agriculture sector, stagnating manufacturing

sector, hard nature of jobs and low wages in both, manyIndians are virtually forced into retail sector.


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Given lack of opportunities, it is almost natural decision to

open a small shop depending on the available means and

capitals. This explains the million of kirana shops and

small stores.

Number of product categories stocked by rural retailer is

almost the same for FMCG products as an urban retailer.

If, rural retailer was stocking 19 product categories then

the urban retailer stocks 27.


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What varies is the number of companies they are

dealing with, 42 for rural and 92 for urban. So when we

multiply number of companies by their brands or

variants and Stock Keeping Units (SKUs), difference

come in thousands. If there are 30 categories, each

has 30 brands and for each there are 30 SKUs. It

becomes 27,000 SKU.


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Strategies forStrategies for

Rural Retail Channel ManagementRural Retail Channel Management

Retailers are closest to POP and have access to a wealth of

information on consumer shopping behaviour.

Retailers have unique advantages for managing brands:

continuous and actionable dialogue with consumers, control overbrand presentation at point-of-sale, control over shopping

environment, display location/adjacencies, and signage.

Retailers relation with customer is based on the understanding of

their needs and buying habits and is cemented by retailer credit.

Rural areas having different retail environment; require separate

marketing strategies in order to penetrate into rural markets.


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Understanding Retailer Behaviour: To develop ability toinfluence retailer to stock and promote products of an

organisation requires identifying the manner in which he

performs retailing.

Mega Marketing: Organisations need to plan and implement

integrated effort for managing rural retail channel. Stand-

alone efforts are likely to provide limited success.

Ensuring Availability: Availability is not a substitute forcreating purchasing power or driving preference, but is a first

step towards it. If marketer delivered their product at retailer

doorstep, they might prefer those products or brands

because; their time and transportation cost is reduced.




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Provision of Credit: By selecting financially strong

distributors and stockists, organisations can ensure

provision of credit to the rural retailers through these

channel partners.

These channel partners can decide the quantum of

credit to be offered to which retailer on the basis of

their local knowledge.

Companies can have a tie-up with banks and financialinstitution for the provision of credit to their distributors

so that they can buy the goods from the companies in

even larger quantity and can then provide these goods

to the creditworthy rural retailers at a credit.




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Provision of Quantity Based Discount for

Distributors: By offering quantity based discounts,

organisations can motivate distributors to lift stocks in

good quantity and then to make special efforts to take

them to rural retailers. Appointing Rural Sub-stockists: Organisations can

appoint the sub-stockists in the rural areas itself, in the

larger villages. These sub-stockists on the basis of their

in-depth knowledge of adjoining villages can distribute thegoods to retailers in the smaller, interior and adjoining

villages in a cost effective manner and can serve retailers

in the villages on regular basis.




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Provision of Van Subsidy for Rural Distribution:

Organisations can provide van subsidy to distributors

who use vans to distribute products in rural areas. These

subsidies can be linked with sales volume or mileage

depending on the market scenario of the region. Exclusive Distribution Network for Rural Sector: This

focused approach has its own advantages as well as

challenges. If the rural markets can get better attention

and service and enable deeper penetration and more

revenues then there can be channel conflict because of

the consequent overlaps.




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Placement of Company Staff with the Distributors:

To monitor and motivate sales effort of distributors in

rural market. These staff members can be selectedlocally to have better knowledge of local terrain and will

also be able to talk with rural retailers in local dialect.

They can act as eyes and ears of company and can

conduct formal and informal research at retailer andconsumer end and inform company on a periodic basis

competitors moves of the in their territory.




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Modern Distiribution ModelModern Distiribution Model

1.SHG MODEL: Project Shakti(HUL)

2.YOUTH ENTEREPRENEURSHIP MODEL:Shaktimaans

(HUL),Eveready,Van,PDS,Co-operative Societies,Petrol Pumps &

Extension Counters,NGOs,Rural Mobile Traders

RURALLOGISTICS: Hub & Spoke System(Coca-cola),Syndicated

distribution(BharatiAitel& SKS,IFFCO


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Summary: Points to PonderSummary: Points to Ponder

Indian retail market is not only one of the largest in the

world but also the most fragmented one.

Serving rural market through rural retail outlets is one of

the most challenging task for the FMCG organisations.

Organisations especially those marketing FMCGs need

to undertake in-depth analysis of rural retailer behaviour.

Ensuring availability of goods at the rural retailers shelf

is critical for an organisation that intends to target the

rural market effectively.


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Organisations need to ensure provision of credit for rural

retailers by selecting financially strong distributors and

stockists and than helping them to have the credit facility

from the banks so that they can further provide credit to the

rural retailer.Organisations can offer retailer promotion schemes on the

quantity based discounts. This will ensure undertaking of

special efforts by the distributors to take goods deep into the

rural market.Organisation can also consider setting up of exclusive

distribution channel or appointing special sub stockists for

serving the rural market


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Limitations ofLimitations of

Traditional Distribution ChannelTraditional Distribution Channel

Push strategy

Very basic level of service

Spurious, adulterates and counterfeits

Limited choice to the rural customer

Strong bargaining power of retailer


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Opportunities for Organised Rural RetailingOpportunities for Organised Rural Retailing

Rising aspiration of the rural consumers; to have urban

like experience while shopping.

Integrated package of products and enablers are available

under single roof.

Provision of advisory services along with the products can

build the association with these stores.

Increasing desire in rural areas to buy quality products and

frustration with counterfeits and fakes.

Rural retailers charging more for the same products.

Opportunity to provide an outing to family and kids.


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Challenges for Organised Rural RetailingChallenges for Organised Rural Retailing

These newly set up organised retail stores for rural market, either owned

or franchised by the large corporates are going through learning phase.

They're grappling with high fixed costs, low revenues and channel

conflicts with existing dealers and credibility issues.

Availability of credit for the rural consumer at the Kirana store, which

might not be available at these organized rural super markets. Most of

the rural consumers do not pay at the end of the month but after harvest

(after 3 or 4 months).

There is lack of organized institutional mechanism to lend money on

credit to farmers with undependable and irregular income streams.


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Challenges for Organised Rural RetailingChallenges for Organised Rural Retailing

Loyalty of rural consumer with the retailer is higher than

the brand loyalty.

Seasonality of the demand is tied with the harvest andfestivals and daily wage earners only getting small dues

on daily basis (for max 20 days a month during off

season).

During the monsoons good numbers of villages are cut off

from neighboring villages and towns.


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Strategies for Organised Rural RetailingStrategies for Organised Rural Retailing

Experiments in domain of organised retail for rural world are inadvanced stage. There have been good learning and accordingly

suitable modifications are being made in proposed business

models.

In case of ITC and some others there is a strategy in the place.

To make immediate payment to farmers who sell his produce at

the mall and thus farmer has a ready cash to make bulk

purchases for the few months at one go. Along with that there is

attraction for him to bring his family and children in form of

amenities like cafeteria and games. Presence of the family

members that too with cash creates a right situation for

marketers to target rural audience for selling their products and

services.


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Some of the retailers like Shubhlabh of Mahindras aredeveloping tie-ups with banks and insurance companies and

making their presence under the same roof as enablers for

the purchase in case of non-availability of cash with the

farmers.

Provision of value added advisory services could be of great

advantage to bring in new consumers to these retail outlets

for the first time. Then the experience of providing quality

products can take over from there to build a long-term

relationship with the rural consumers.


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Appropriate merchandising and integrating solutions as a

package that can meet the needs for all types of

consumers can be a good strategy to serve the needs of

the relatively poor people to some extent.

Organisations can start by opening retail outlets in the

regions or states, which have relatively better connectivity

and are less likely to face the transportation problems

during the rainy season.


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ConclusionConclusion

The organized retail formats are offering good quality branded

products and the value added services for villagers.

This is first time such an attempt is being made and this will definitely

ensure that the consumers are not purchasing fakes andcounterfeits.

The future scenario with respect to these will be determined by the

overall success achieved by these initial experiments.

Only thing is how to scale up the model and still keep the operational

and capital expenditure low to make a decent return on investments

made in the process.


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To provide last mile connectivity with rural consumers,

corporate sector is establishing branded stores in rural

and semi-urban areas.

If it is a forward integration strategy for some players, for

others it is a strategy to overcome limitation of

conventional distribution channel.

This is a new format where players are in learning phase

and are experimenting with different options. These

options range from company owned stores to joint

ventures and also through the franchisee route.


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Even the petroleum companies have started to leverage

their wide distribution network of petroleum retail outlets to

market non-petroleum products.

Rising income level and aspirations, increasing demand for

quality quality products and counterfeits are the reasons

which justify potential and opportunities for organized and

products, desire for urban like experience, frustration with

low branded retail outlets in rural areas.Provision of credit by rural and semi-urban retailer, loyalty

of rural consumer with existing retailers that have served

their needs for decades, seasonality of demand and lack of

around the year accessibility of these stores to the rural


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Corporates will have to develop strategies to lower down

the infrastructure and operational costs and resolveconflict with existing channel partners, then only they will

be able to leverage and set-up these stores on a large

scale at national level.

Rural Distribution

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